Korea: GDP looks to be improving modestly – Nomura

Young Sun Kwon, Research Analyst at Nomura, expects Korean GDP growth to remain at 2.4% y-o-y in Q1 on stronger exports and weaker consumption.

Key Quotes

“Korea’s export value continued to improve in March, mainly due to higher export prices on electronics and petroleum products. However, export volume growth increased modestly, as export shipment volumes increased by 5.0% y-o-y in February, much less than export value growth of 20.2% during the month. As a result, the manufacturing operation rate fell to 70.9% in February, well below the historical average of 80%. This is echoed by Nikkei South Korea PMI manufacturing index, which fell to 48.4 in March from 49.2 in February. Domestic demand data were mixed in February; domestic shipments and business investment fell, while retail sales and construction works completed gained.”

“All in all, we expect real GDP growth to remain at 0.5% (sa) q-o-q or 2.4% y-o-y in Q1 2017. We maintain our below-consensus 2.0% annual GDP growth forecast for 2017, which suggests GDP growth will slow in H2 as export momentum should diminish on subdued international trade volume growth and domestic demand will likely weaken on a higher domestic debt burden. Despite our bearish view on the growth outlook, we maintain our call that the Bank of Korea (BOK) will leave rates unchanged at 1.25% in 2017, as we believe that Korean policymakers’ concern over household debt and the Fed’s monetary policy normalisation should keep the BOK from cutting policy rates.”